Guest Post: China's Urban Dream Denied

China is in the midst of an urban revolution, with hundreds of millions of migrants moving into cities every year. Since 2011, for the first time in history, more than half of China’s 1.3 billion citizens (690 million people) are living in cities. Another 300-400 million are expected to be added to China's cities in the next 15-20 years. New Premier Li Keqiang recently proposed accelerating urbanization in China, and said urbanization is a “huge engine” of China’s future economic growth. With its unprecedented speed and scale, Nobel laureate Joseph Stiglitz has called urbanization in China one of the two main forces (the other being technological development in the U.S.) shaping the world in the 21st century.

Yet, China’s urban dream may be derailed by the lack of affordable housing in cities for the massive influx of urban residents.

For almost five decades, Chinese cities were dominated by welfare-oriented public rental housing provided by either the government or public employers. Severe housing shortages, residential crowding, and poor housing conditions were common problems in cities. Over the last two decades, Chinese cities have experienced an unprecedented housing privatization, as the Chinese government has sold public rental housing at subsidized prices, encouraged developers to provide new private housing, and ended public housing provisions.

With the influx of both domestic and international investment, there has been an unprecedented housing boom in Chinese cities. In the decade leading up to 2010, according to the Economist Intelligence Unit, China constructed roughly twice the total number of houses currently in the UK, or about the same amount of houses in Japan.

These new houses were also much larger and of a higher quality than the ones they replaced; residential floor space per capita in cities increased from 43 in 1980 to 340 square foot in 2010, although this is still much smaller than in the United States (700 square foot per person). 75% of households in cities/towns(85% of all households nationwide) were homeowners in 2010, compared to 20% in the 1980s. This rate of homeownership is higher than in many developed countries.

Meanwhile, housing prices have skyrocketed in cities, with the national average housing price increasing by 250% in the decade between 2000 and 2010. The housing price-income ratio classifies much of China as“severely unaffordable” in terms of housing. In big cities like Beijing and Shanghai, a modest apartment can cost multiple millions of yuan to purchase, and thousands of yuan to rent, making housing affordability the top concern of most low- and middle- income households.

As a result, millions of migrants have been completely left out of the “Chinese dream,” with few owning homes in cities and most living in extremely crowded, poor quality dwellings. Migrants are generally more vulnerable in the housing market due to their lower incomes and the discriminatory Household Registration System, or hukou system (often called an internal passport system), under which migrants are not considered “legal” residents in cities despite living and working in there over the long-term. Without local urban hukou, migrants are not entitled to welfare benefits such as subsidized housing. Even in Shenzhen, the city of migrants, local hukou is required to access low-income housing. In others cities like Beijing, several years of local hukou is required before applying for low-income housing.

Without government subsidies, even just renting a decent apartment in the formal market is beyond most migrants’ means. As a result, most migrants are forced to find temporary housing such as factory dorms and basements, and illegal housing built by suburban villagers, forming so-called “migrant enclaves.” With collectively owned land, suburban villagers are entitled to build housing for self-occupation; yet they often build extra housing illegally and rent these out as an extra source of income.

Because these “migrant enclaves” are technically illegal, and therefore could be demolished by the government at any time, they are often of extremely poor quality and built with the sole aim of maximizing the amount of occupants they can house. Thus, migrants are forced to live in slum-like settlements at the fringe of urban society.

In addition to traditional poor migrants from the countryside, even educated migrants cannot afford housing in cities and have to live in these migrant enclaves. For example, the tens of thousands of occupants of Tangjialing, a migrant enclave in Beijing, are recent college graduates who cannot afford housing in the city, and therefore live in cramped, boxy rooms and spend hours commuting to work each day. As a result, these white collar migrants are often referred to as the “ant tribe” (yi zu).

As these migrant enclaves are often located at the urban fringe far away from urban centers, many migrants also live in tiny rooms in bomb shelters and basements under apartment and commercial buildings that were designed for parking or storage. Indeed, an estimated one to two million people, predominately migrants, live in basements in Beijing alone, forming an underground city. They are referred to as the “mouse tribe” (shuzhu).

Yet, with rapid urbanization/urban renewal and the government’s pursuit of modernity, even this limited affordable housing for migrants is under threat, with migrant enclaves being demolished/redeveloped and basements being evacuated. An unprecedented challenge facing the Chinese government is finding a way to shelter migrants currently in Chinese cities and as well as those who will arrive in the coming years.

So far the government’s efforts have been lacking. Despite the appalling housing conditions in many Chinese cities, it wasn’t until 2006 that the State Council formally recognized the need to improve migrants’ housing condition. Even then, however, the central government just demanded that employers provide their migrant employees with housing, still leaving the government free of responsibility. In 2010, the Ministry of Housing and Urban Rural Development (MOHURD) suggested that the latest rent-control housing – Public Rental Housing (gong zu fang) — may be accessed by qualified migrants. Yet, strict qualifications make it accessible only to a very small proportion of skilled migrants, leaving the majority of migrants in the same boat as before.

The lack of affordable housing is also a problem for low-income households with local urban hukou. Faced with increasing discontent and potential social instability, the central government has renewed its commitment to low-income housing in the last few years, pumping billions of yuan into low-income housing development and setting ambitious targets for low-income housing. For example, the government plans to add 36 million units of new affordable housing during 2011-2015. While it is yet to be seen whether China can achieve this goal, migrants are not even the target population of this new low-income housing program. Any low-income housing policy leaving out such a large segment of the poor as migrants defies the ultimate purpose of low-income housing policy – social justice, and thus is a failed one.

So long as one-third of urban residents are migrants without legal resident rights, urbanization in China will remain “incomplete.” If urbanization is going to succeed, the Chinese government must make affordable housing for migrants a top priority.

Achieving this will require providing enough affordable housing to accommodate the growing urban population, ending the institutionalized discrimination policies against migrants, and assimilating them into the low-income housing system.

In addition to providing some low-income housing at least to the poorest migrants, the government should actively mobilize the private sector to massively provide affordable housing. Right now, the formal rental housing market is very much underdeveloped in Chinese cities. With high profit margin in the owned sector and uncertainty in the housing market, developers have focused on upscale private housing. The very limited rental housing by developers is often high-end apartments for the elite. The government needs to provide incentives such as tax breaks, low-interest loans, and cheaper land to encourage developers to provide more affordable rental housing for the urban poor and migrants.

In addition, the government should fully recognize suburban villagers’ land rights, and encourage and facilitate them to invest in decent affordable housing. With the dual land system in China, only local municipal governments can convert rural land into urban land for urban development. This monopolized rural-urban land conversion by the local government needs to be abolished, and the collectively owned land in suburban villages should be allowed to enter the land and housing market directly to reap the benefits of urbanization. With massive profits from their land tenure, suburban villagers will be motivated to invest heavily in decent housing and neighborhood infrastructure, which not only massively increase the stock of affordable housing, but also drastically improve housing conditions in migrant enclaves.

Only with a large stock of decent, affordable housing in both the public and private sector, millions of migrants can achieve their housing dream in cities, and China’s urban dream may be realized. After benefiting from cheap migrant labor for decades, it is time for the government to shoulder at least some housing responsibility for migrants. Otherwise, a huge population without access to decent affordable housing will derail the government’s push for further urbanization and cause sociopolitical instability.

I agree, and without all this money printing both housing costs and rental costs will decline. They should've long ago with the decrease in real wages but have not.

Side note: rent-control NEVER works and always "backfires" on the very people it was intended to help. Of course it's all a controlled way for those implimenting the policy to become "Tenantlords" without having to take the risk or make the investment to become Landlords.

"With the dual land system in China, only local municipal governments can convert rural land into urban land for urban development."

The government in China often uses corruption, threats, intimidation, force and theft to take the land. Is it really that much different than the alleged supreme court in the US allowing the same thing through eminant domain?

I don't know what they expect the government to do about it. I am not suggesting that the Chinese housing market is operating at ideal efficiency, but this appears to be a case where demand exceeds supply, and scarcity is rearing its unfortunate head. These "temporary" make-shift slum dwellings are the only housing that can profitably be produced at the prices which the impoverished immigrants can afford to pay. This should only happen when, theoretically speaking, the availablity of productive jobs within the city are significantly lesser than its population can sustain.

Saw a TV show about housing in China. It showed fifteen people all packed into a horrible shack living in terrible conditions. They had saved their money together and purchased a spacious condominium. The condo was empty because it was an investment and they were hoping it would appreciate. See a problem here?

Who writes this stuff... a subsection of the Ayres\Dorhn\Obama Coalition for a WorkCampAmerika?

If urbanization is going to succeed, the Chinese government must make affordable housing for migrants a top priority...the government should actively mobilize the private sector to massively provide affordable housing.

Affordable housing... affirmative action... governments "mobilizing" the private sector! ...where have we seen all these wonderful planned expansions of the role of the state before>/what's next on the agenda for China's rush to imitate the USSA? Hate laws and capital controls?

You know... the legion of China bashers' who float out of their holes every time a piece about Sino-ville appears are amazing. China let's companies whose export business models fail to compete go outta business -Bingo! Damn Commies are at it agin! China fails to provide massive state subsidization of housing and health care - Gotcha! Damn Commies screwed up agin! China fails to regulate EVERY ASPECT OF commercial and farming activity IN IMITATION OF THE EPA and OTHER GOONSQUAD STEPPERS OF THE MERIKAN 4TH REICH...damn Commies gonna choke everyone to death!

It's hilarious...but frightening at the same time... the degree of hypocritical schadenfreude which appears time and agin here almost makes anAnonymous look like a voice of sanity and reason! I don't know who "the Diplomat" is... and I don't think I want to know... but if they get away with posting this stuff on ZH... you know we've been penetrated by Bolshie moles... Big Time!

it wasn’t until 2006 that the State Council formally recognized the need to improve migrants’ housing condition. Even then, however, the central government just demanded that employers provide their migrant employees with housing, still leaving the government free of responsibility.

and then...

This monopolized rural-urban land conversion by the local government needs to be abolished, and the collectively owned land in suburban villages should be allowed to enter the land and housing market directly to reap the benefits of urbanization. With massive profits from their land tenure, suburban villagers will be motivated to invest heavily in decent housing and neighborhood infrastructure...

We lay out in full the blueprint... for actually creating a new rentier class of social parasites who used their quick profits from selling off the remaining "commons" to establish themselves as the new ruling elite! How C19th England and ascendancy of the cabbalist class it all reads.... scares the Dickens outts me to think we be readin it here!

With Nick Colas knockin the shit outta truth and common sense over on stage right... and Itchy Brother takin the sledge to economic freedom and self-determination here on stage left.... we gettin knocked senseless by what appears to be a major internal putsch of the formerly mighty n free Zero Hedge....

Work hard to get out of the country into the city...work harder to pay high city costs and try to save for retirement.....after 50 years of Hard Word in the polluted city dungeons, you finally achieve your goal and have saved enough to move back to the country to relax...and then you Die...within 30 miles where you were born.

^Moochers wanting more and more free stuff. Imagine having Section 8 next door to you, you earned your house...they get it for free. Oh and you have to pay taxes for allowing them to lower your quality of life (noise, litter, drama, etc.)

"Even then, however, the central government just demanded that employers provide their migrant employees with housing, still leaving the government free of responsibility. In 2010, the Ministry of Housing and Urban Rural Development (MOHURD) suggested that the latest rent-control housing – Public Rental Housing (gong zu fang) — may be accessed by qualified migrants. Yet, strict qualifications make it accessible only to a very small proportion of skilled migrants, leaving the majority of migrants in the same boat as before."

So... leading up to a horrifying bangladeshi style apartment collapse when employers are forced to provide housing or unemployment increasing and increased spending technological efficiencies instead of worker labour? Starting ghettos with rent controlled public housing?

China has up to 7000 tonnes + of gold writes Matt Insley in the new issue of American Hard Assets. This issue focuses somewhat on security, and includes an article on "Trade-Based Money Laundering" (using gold in nefarious activities). Of course I would have more sympathy for DHS if our .gov were not heading at flank-speed for full blown fascism...

Other interesting articles include gold apps for the iPhone, an Online Buying Guide (for gold) an artcile on rhodium (OK!) as well as two interesting pieces on art.

All of those people being ushered into new urban centers should make for easy targets in the upcoming war. Krugman gets to kill two birds with one stone..... massive population culling, and lots of broken windows.

China is in the midst of an urban revolution, with hundreds of millions of migrants moving into cities every year. Since 2011, for the first time in history, more than half of China’s 1.3 billion citizens (690 million people) are living in cities. Another 300-400 million are expected to be added to China's cities in the next 15-20 years

BULLSHIT #1

When hundreds of millions migrate into the city every year, how many years before all 1.5 billion live in cities?

15 years = correct

I guess nobody is left in the country side?

BULLSHIT #2

The migrant workers can't afford the urban dwellings. Try renting a 50k to 70k box in the sky on a 5 Dollar a day salary.

China is an emerging economy no doubt but China is no longer a growing economy. It is shrinking and the debt load has exploded to unsustainable levels. China has peaked in many ways. Culturally, economically, scientifically and politically.

Please no more BULLSHIT stories about China's "miracle" economy. The ghost towns are real and they're really empty. Migration is not happening as the author claims it would be.

Hot A$ian Money is from mostly corrupt government bidding and contract work involving families and friends.

Middle class has put all their eggs in one basket, namely real estate. Billions of multi generational capital destroyed and mal-invested.

Yes, I'm confused as well. Weren't we just all talking about ghost cities? So, do housing shortages and ghost cities coexist? Are we talking about a massive and stupid misallocation of resources? Or is one of these memes just complete and utter bullshit? Definitely something to think about.

The empty once are people's way of investing money before it becomes not worth much. That's also why gold/jewlery buying is also popular in China. People in China, rightfully, don't trust the stock market.

This is truly one of the most confusing sights I've ever witnessed. Hundreds of luxury high rises that are empty and 1/4 mile away squalor that boggles the mind. Recently I was on a train leaving Nanchang and hundreds on migrant workers were heading home. High rise construction continues 24-7. Somebody is going to take it on the chin

Many companies provide rental agreements for low wage workers, as well as food. Plus you don't pay tax. So a low-wage worker in a decent company has that money to spend on stuff they like.

3-6K RMB goes a long way if you spend it wisely.

Some bigger companies provide housing compensation, so you have the option either getting the rent paid or some money put away towards you renting/purchasing an appt. Everyone seems to have just assumed recently that China is just floating pigs everywhere, just as Russia is bears on unicycles. There's a lot of wealth going around, unlike here in North America where weathl is being sucked out of the middle class.

BS point #1...My brother has lived in Guangzhou China now for the past three years and its true millions of peasant migrants move into the major cites each year....But many also move back to the countryside each year!!! He noticed this the first year he lived in China. During the Chinese New Year, when everyone goes back home, many to the small villages they migrated from, many do not come back to the big cities but stay back in the villages. He said about half the people he got to know in Guangzhou never returned. They get fed up trying to eek out an existence in the big cities and figure might as well eek out a life back with family!!

I went and checked out real estate in Shanghai suburbs and Beijing suburbs, I didn't see 300 sq feet cells that this mentions. General tendancy is towards 600-1000 sq feet. I've also seen "livable" new condos in Toronto, they are around 300-600 sq feet. Oh and the once in Toronto are twice as expensive. Many farmer migrants own some properties which they can sell and relocate to cities. In fact, as cities grew, many were forced to sell their properties to the city, so they got a new nicer property out of it and sometimes even a large cash difference.